The limitations of what may be termed the push era of digital financial inclusion are becoming increasingly apparent. We have seen strong outreach by a relatively small number of very powerful players —mostly telcos and some large banks— to recruit customers onto their digital transactional platforms. In some cases, where the client proposition has been strong enough and the provider has invested sufficient resources, there has been dramatic uptake (e.g. M-PESA). However, in most cases, actual usage of digital services lags, dormancy is very high, and usage profiles are quite narrow. Across the developing world, 70% of registered mobile wallets in 2014 had not been used during the last 90 days, according to the GSMA.
As digital channels become more widely available, and in particular as smart phones become accessible and affordable to far wider sections of the population, there is a need and an opportunity to develop stronger pull propositions which cause customers to want to use digital transaction services. Since financial services are rarely if ever desired for their own sake, these pull propositions will likely be oriented towards solving daily problems which people experience as consumers, as members of communities and social networks, or as they conduct their business.
We believe that the key to creating these pull propositions is to embed the digital financial service capabilities within software tools (i.e. smart phone apps) that directly address these broader needs. An adequate software solution can help contextualize the need for the financial service and improve its presentation, thereby greatly enhancing the customer experience.
The appropriate package of digital transactions plus software can drive more systematic use, and usage creates data. Thus, in the process of solving narrower problems, opportunities are created to offer new financial possibilities to those customers based on new insights gained.
We can summarize the general approach to financial inclusion thus:
Digital transactions + software tool = Customer usage patterns + data analysis
= Solving specific customer problems + building options for new financial services
If the push era was about stand-alone financial transactional services, the pull era will be about software solutions that can weave through transaction patterns and data. This much is clear, but the harder questions are which specific customer problems these solutions will be trained on, and what sorts of insights the corresponding data will generate.
In a recent paper, we have set out three different pathways in which this future can unfold: (i) through advanced data analytics that shed light on individuals´ needs and characteristics; (ii) by supporting small businesses through which financial services can propagate into local communities; and (iii) by supporting social and peer networks so that individuals who are better known to financial service providers can channel services to others within their networks.
We are particularly intrigued by the latter two pathways, which create a fuzzier distinction between users and channels. In the lower income segment, where the amount of available data is likely to remain low for a long time, training big data resources on networks seems more promising than focusing it entirely on individuals.
Download the Paper ‘Pathways to Smarter Digital Financial Inclusion‘.
About the Authors
Ignacio Mas is a Senior Research Fellow at the Saïd Business School at the University of Oxford and at the Fletcher School’s Council on Emerging Market Enterprises at Tufts University. David Porteous is the CEO of BFA, a consulting firm based in Boston MA.